In an exchange with Federal Reserve Chairman Ben Bernanke last week, Rep. Ron Paul (R-Texas), the Chairman of the House Domestic Monetary Policy Subcommittee, asked Bernanke a simple and straightforward question: Is gold money? Although Bernanke dismissed and dodged the question, we must answer it to put our fiscal house in order.

A discussion of money may cause many eyelids to get heavy, but given its crucial and overlooked role in society, it is an essential issue facing us today. The U.S. dollar, and the the Federal Reserve does not even come close to meeting the definition of a real currency. The U.S. currency is a “fiat” currency; it is not backed by anything solid, and is literally created out of thin air whenever the Fed prints more “notes.”

Before Paul’s question can be answered, we first have to ask: what is money? Currency is one of the most misunderstood aspects of society, yet it is at the heart of civilization, prosperity, and wealth creation. From currency we get prices, and through prices we get peaceful exchange, information, and the ability to transfer labor and energy.

The great Austrian economist Ludwig von Mises summed up money in a few short words: it is the most marketable commodity in society. Money is a medium of exchange derived from the unplanned, voluntary actions in the marketplace through consent and contract. As economies expanded, the market favored a currency that is rare, easily divisible, uniform, tough to manipulate, and which meet the profit/loss demand. That currency, which people have favored for over 6,000 years, is gold.

Centralizing the production of a currency into one monopolistic organization is the antithesis to a free market economy and a free society. The Fed’s easy money policies allow politicians to fund massive government programs that have put the U.S. government into debt and create an economy riddled with malinvestment. Thanks to the fiat dollar, foreign wars, bases all around the globe, bailouts, and the welfare state can be paid for without directly taxing the citizenry. The problem is that every dollar that is printed devalues the ones in circulation even more, leading to rising in prices and a hidden tax on low-income and middle class citizens.

The debates over the debt ceiling, rising gas prices, and foreign policy are being approached as an accounting issue, but a proper understanding of sound money can easily address all of these. A currency tied to gold and silver, as the U.S. Constitution requires, is perhaps the best way to restrain the federal government’s power to spend recklessly, whether it be on crooked ponzi schemes, welfare for the rich, or a global empire. Many Americans rightly complain about the high price of gasoline and blame “speculators” or “evil oil companies,” but if you look at the price of oil in gold, it has actually gone down.

As the U.S. faces trillions in debt, a sound alternative currency to the U.S. dollar will play an increasingly important role in the future. Gold, now at almost $1,600 an ounce, is growing in popularity internationally as an “anchor of stability” against inflation as many around the globe get rid of American dollars.

Although there is practically no chance that the federal government will obey the Constitution and restore a sound currency, there is still hope at the local level — which is where real change comes from anyway. Recently, Utah legalized gold and silver as commercial currencies to be minted by private companies. The key to ending the Fed-induced madness is not to look to Congress or new legislation, but to repeal the “legal tender laws” that enforce the Fed’s monopoly and allow competing currencies in the free market.

To answer Paul’s question: Yes, gold is money, because it is favored by individuals acting in the marketplace as a trusted medium of exchange. A free market in currencies would use money backed by gold, but any money produced that met the requirements of the market could also exist, like silver, copper, or bitcoins. From inflation and foreign wars to bailouts and staggering debt, America is paying the price of a fiat currency.